Last week, utahwaterlaw.com reported on the Utah Court of Appeal’s recent decision in HEAL Utah v. Kane County Water Conservancy District, which upheld the approval of two change applications that will provide much-needed water for the Green River nuclear power plant project.

HEAL Utah Decides Not to Appeal to Utah Supreme Court

Following the court of appeal’s decision, HEAL Utah said it would review the court’s ruling before deciding whether to appeal to the Utah Supreme Court. However, on Wednesday, HEAL Utah and the other principal environmental groups involved in the lawsuit, Uranium Watch and Living Rivers, announced “they are dropping the legal challenge to the project’s water rights.”

HEAL Utah and Other Groups Maintain Nuclear Project is “Struggling”

While the HEAL Utah and the other environmental groups have dropped their legal challenge to the Green River nuclear project, the groups maintain that “all facts available show the project is struggling, having attracted very little investment from utilities.” More specifically, HEAL Utah has said that “[d]ropping their legal appeal will likely hasten the project’s demise, because Blue Castle Holdings, the company behind the troubled, nearly-decade-old reactor plan, will now have to make large cash payments to southern Utah water districts.”

“By dropping the appeal we are actually forcing them to put up or shut up as they sometimes say,” HEAL Executive Director Matt Pacenza told reporters outside Matheson Courthouse in Salt Lake City. “We don’t think they can.”

“Blue Castle may be winning in the courts, but they’re losing everywhere else. When no one wants to invest in your company and no utility wants to buy your power, you’re in deep trouble,” Pacenza said. “Everything we have learned over the last nine years is that this is a project that has not gotten off the ground.”

Similarly, Sarah Fields, program director of Moab-based Uranium Watch reiterated that the Blue Castle nuclear power plant project has “never been a viable project. The Court of Appeals decision does not change that.”

“None of the utilities in Utah and the surrounding states have agreed to join the project at any level,” Fields said. “There is no realistic source of funding to construct nuclear reactors in Utah.”

Fields also pointed out that although Blue Castle is purportedly putting together a permit application, the company has not had contact with the Nuclear Regulatory Commission since 2011. Furthermore, Fields, like Pacenza, questions whether Blue Castle will be able to make the hefty payments to the Kane and San Juan County Water Conservancy Districts, which start at $180,000 per year for the first five years, and then increase to $580,000 a year after the nuclear reactor comes online. Given Blue Castle’s inability to raise funding from outside sources, just over $500,000 since 2007, Fields and Pacenza may very well be right about Blue Castle’s inability to pay for the needed water.

Living Rivers Says Water Availability is Still an Issue for the Project

Echoing Pacenza and Fields, John Weisheit of Living Rivers added water availability also remains a huge issue for Blue Castle. “The project is a non-starter for one very important reason: There isn’t enough water available from the Colorado River. The demand for water by the seven states of this basin exceeds the natural supply.”

Weisheit also said that the effects of climate change may further plague Blue Castle in its attempt to complete its nuclear project. “Increasing aridity is becoming a major cause of depletion,” he said. “Over the last 16 years the average decrease in the natural flow has been 20 percent, or 3 million acre-feet.”

Blue Castle Holdings Fires Back Over Claims of Financial Struggles

The Green River nuclear power plant project is the brainchild of former Utah County Republican lawmaker Aaron Tilton, who is the president and CEO of Blue Castle Holdings. Following the Utah Court of Appeals’ decision, Tilton said in a news release:

The original approval by the State Water Engineer has now stood the test of an appeal where the relevant evidence was weighed. The ruling is a major de-risking milestone for the Blue Castle Project. It provides future utility participants greater certainty that the major asset, water for the deployment of a new nuclear plant, has been secured economically.

In response to the claims made by HEAL Utah and the other environmental groups regarding Blue Castle’s finances, Blue Castle attorney, David Wright said, “HEAL Utah is simply not privy to Blue Castle’s finances and does not know what Blue Castle has been doing, concerning its efforts in developing the project. Blue Castle has honored the terms of its leases with the two water conservancy districts and intends to continue to do so.”

Blue Castle Holdings Moving Forward to Select Builder of Power Plant

Last month, Blue Castle announced it was moving forward with the project and that it was beginning the process of selecting contractors to build the power plant. Blue Castle said its power plant will create between 2,200 and 3,000 megawatts of power, which will increase Utah’s ability to generate power by up to 50%, while consuming only 1% of its water diversions.

Time Will Tell if Power Plant Project will Come to Fruition

While the legal fight between HEAL Utah and Blue Castle Holdings may be over for now, time will tell whether the Green River nuclear power plant project will ultimately be a success. Aside from raising resources to continue to fund the project and pay for the water necessary to fuel the plant, climate change and states’ efforts to draw more water from the Colorado River may further impact the vitality of the project.

Prior Appropriation System Adopted in Utah

As part of its responsibility to the public over water in Utah, the State has adopted the “prior appropriation system—a capture system of water allocation—to maximize productive usage of water.” Through Utah’s prior appropriation system, those wishing “withdraw water from the natural environment” are required apply to the Utah State Engineer. In the application to the State Engineer, potential water users must include: “the nature of the proposed use,” the “quantity of water in acre-feet,” “the time during which it is to be used,” “the name of the stream or other source from which the water is to be diverted,” “the place on the stream or source where the water is to be diverted and the nature of the diverting works,” and any “other facts that clearly define the full purpose of the proposed appropriation.”

However, an appropriation by the State Engineer “may be made only for a useful and beneficial purpose.” Thus, the State Engineer “must ensure that the waters of the state are used by appropriators in accordance with their priorities and that diverted waters are used for proper beneficial purposes.”

Change Applications Under Utah Law

Once a potential user obtains the right to use unappropriated water, “a water right holder is entitled to change the point of diversion or the place or nature of use of water so long as vested rights are not impaired by the change.” In order to exercise the right to change the point of diversion or the place or nature of use of water, a water user must file a change application with the State Engineer. Under Utah law, the State Engineer is required to “follow the same procedures . . . for applications to appropriate water and applications for permanent changes of point of diversion, place of use, or purpose of use.” More specifically, the Utah Code “requires the State Engineer to approve a change application unless it impairs any vested [water] right without just compensation.”

Even still, the Utah Supreme Court has explained that water right owners have a vested right to the “quality as well as the quantity which he has beneficially used.” Thus, while there is a presumption in favor of approving change applications, the “State Engineer must first determine that the proposed changes will not impair any vested [water] right to the beneficial use of a certain quality and quantity of water.”

Even though the State Engineer is authorized to determine whether a change application should be approved, “a person aggrieved by the State Engineer’s decision may obtain judicial review in accordance with Title 63G, Chapter 4, Administrative Procedures Act.” As part of a district court’s review, the court “is not sitting in its capacity as an adjudicator of rights, but is merely charged with ensuring that the state engineer correctly performed an administrative task.” Furthermore, in its review of the State Engineer’s decision, a “district court may only consider issues ‚subject to determination by the [State] Engineer because the effect of the court’s judgment is the same as it would have been if the Engineer had reached the same conclusion in the first instance.” Thus, the district court “stands in the same position as the State Engineer,” and may only review those “issues determined by the State Engineer.”

Green River Power Plant Project’s Need for More Water

In HEAL, the Kane County Water Conservancy District and the San Juan County Water Conservancy District had for some time leased their existing water rights to Blue Castle Holdings Inc. “for the propose development of a nuclear power plant near” Green River, Utah. Because the proposed nuclear power plant project “will require the continuous depletion of nearly all of the Districts’ apportioned water to create steam to generate power and to cool the power plant,” The water conservancy districts and Blue Castle sought “to move the Districts’ approved points of diversion from several small tributaries to a single location on a larger river upstream from the existing points of diversion.”

The Change Applications at Issue

In January 2012, the State Engineer approved two change applications as it related to the existing water rights of the Kane County Water Conservancy District and the San Juan County Water Conservancy District. San Juan County Water Conservancy District’s change application “proposed to change the point of diversion from the smaller San Juan River to the Green River in Emery County, Utah.” San Juan County Water Conservancy District’s change application “also proposed that San Juan County Water Conservancy District’s water would be stored in a new reservoir and be used for the Project.”

Kane County Water Conservancy District’s change application proposed a change not only in the point of diversion, but also in the nature of the water use. Kane County Water Conservancy District “holds rights to 29,600 acrefeet of water from Wahweap Creek and Lake Powell in Kane County, Utah, for steam generation in the abandoned Kaiparowits Power Project.” In its change application, Kane County Water Conservancy District “proposed to use its water rights to aid in producing nuclear power for the [power plant] [p]roject,” and “[r]ather than diverting the water from Lake Powell, the Kane County Water Conservancy District proposed to divert the water from the same location proposed by the San Juan County Water Conservancy District in the Green River.”

HEAL Utah Challenges State Engineer’s Approval of Change Applications

Following the State Engineer’s advertisement of the Districts’ change applications, “nearly fifty protests were filed against the Kane County Water Conservancy District’s application and close to thirty protests [were filed] against the San Juan County Water Conservancy District’s application.” Even still, the State Engineer ultimately approved both change applications.

HEAL Utah, a Utah environmental protection group, sought judicial review of the State Engineer’s decision to approve the two change applications in district court. The two cases were consolidated, and a bench trial was held in September 2013. Following the bench trial, the district court ruled in favor of the Districts and Blue Castle, upholding the State Engineer’s decision to approve the change applications. HEAL Utah subsequently appealed.

HEAL Utah’s Three Challenges on Appeal

On appeal, HEAL Utah argued that the district court erred when it approved the change applications because the applicants had “not satisfied the burden of demonstrating the Change Applications meet the” necessary statutory requirements. Specifically, HEAL Utah argued that: “(1) there is no unappropriated water in the proposed source, (2) the proposed diversion will have an unreasonable impact on the natural stream environment and is contrary to the public welfare, and (3) the proposed change is not feasible and is speculative.”

Utah law sets forth that a change application should be approved if “there is reason to believe” that “there is unappropriated water in the proposed source,” “the proposed use will not impair existing rights or interfere with the more beneficial use of the water,” the proposed plan is “physically and economically feasible” and “would not prove detrimental to the public welfare,” and “the applicant has the financial ability to complete the proposed works.”

Utah Court of Appeals Rejects Contention that Green River is “Overapportioned”

In addressing HEAL Utah’s first contention, that there is no unappropriated water in the Green River and therefore the water rights upon which the change application is based do meet the requirements of Utah law. There, the court of appeals rejected HEAL Utah’s argument that the Green River is “overapportioned.” “HEAL Utah’s argument ignores the fact that the Green River and its tributaries form an interconnected system of which the Flaming Gorge Reservoir is only a part,” the court of appeals noted. “HEAL Utah’s evidence and experts were unable to demonstrate the extent of impact the diversions would have on the fish or the stream.”

HEAL Utah’s Briefing Deemed Inadequate on Several Points

Turning to HEAL Utah’s next contention, the court of appeals determined that “there is reason to believe the proposed changes will not unreasonably affect public welfare and the natural stream environment.” The court concluded that “HEAL Utah has failed to meet its burden of persuasion on appeal.” The court said that while “[m]ere probabilities and speculative evidence may be sufficient to challenge a change application … HEAL Utah has not actually challenged the district court’s factual findings … [and] cites no legal authority to support its arguments, and offers no references to the parts of the record on which it relies.” The court of appeals made similar statements in regards to certain of the other arguments raised by HEAL Utah.

Utah Court of Appeals Says, Although Project is a “Risky Venture,” the Applicants Presented Enough Evidence it was Both “Physically and Economically Feasible”

Finally, the court of appeals addressed HEAL Utah’s contention that “the proposed beneficial use of water—supplying a currently unbuilt nuclear power plant—is neither financially feasible nor anything more than a purely speculative use of water.” The court of appeals determined that “although the Project is a risky venture and has not yet been licensed through the Nuclear Regulatory Commission, the Applicants presented evidence that the Project is both physically and economically feasible.”

Similarly, the court rejected HEAL Utah’s argument that the power plant project is speculative or that the change applications attempt to create a monopoly over future water use. According to the court of appeals:

But here, there are contracts in place assigning the Districts’ current water rights to Blue Castle. Although Blue Castle does not intend to build the power plant without the assistance of other entities, the purpose and use of the water is clearly defined—it will be used for the generation of nuclear power. Unlike the applicants in Western Water, Blue Castle has proposed a site for the plant, invested money to develop the plant, and offered a detailed description of the purpose for the water and specific amount of water needed. This enormous risk and detailed plan for the nuclear plant demonstrates that Blue Castle’s interest in obtaining this water is not merely speculative.

HEAL Utah Will Review Ruling Before Deciding to Appeal Further

In a press release, Matt Pacenza, executive director of HEAL Utah, said the group is “disappointed” by the ruling, but still optimistic. “Utahns opposed to the project shouldn’t worry. This remains a project which has failed to attract investment or interest from any utility,” Pacenza said. “If no one wants to fund your project, or buy the product you’re selling, then you’re going nowhere.” HEAL Utah said it will review the court of appeals’ ruling before making and decision about whether to appeal to the Utah Supreme Court.

In its opinion, the court of appeals, noted several weak spots in HEAL Utah’s original filing, which may impact any further appeal. The court’s opinion sets forth that “[o]ur analysis of HEAL Utah’s arguments is limited because its arguments are often inadequately supported and briefed. In response, Pacenza has acknowledged that their appellate brief could have been stronger. “We developed some issues with our counsel late in the process,” he said. “We didn’t present as strong a case as we had hoped. But we still believed these critical issues should be heard by the court.”

Water Conservancy Districts and Blue Castle Rejoice in Victory

Conversely, the water conservancy districts and Blue Castle rejoiced in their victory. “”We have believed in this project since the beginning and yet another court has agreed with us,” said attorney David Wright, who defended the state engineer’s decision. “We are pleased with the outcome.” Blue Castle’s Aaron Tilton, a former Utah lawmaker, said the company is sifting through contractors and plans to begin site preparation work at Green River in about two years. “Our project has been scrutinized at many levels, including the state engineer, the district court and now the appeals court,” he said. “We have fully complied and satisfied all the requirements of the law and we can assure the public the level of scrutiny that has been applied to the process is welcomed.”